SATISHCHANDRA RATANLAL SHAH v. STATE OF GUJARAT & Anr.

certain observations – These observations are expunged – The proceedings initiated based on the FIR instituted at the instance of respondent no. 2 are quashed – Penal Code, 1860 – ss. 405, 406, 415 and 420. Allowing the appeal, the Court HELD: 1. The criminal application preferred by the accused before the High Court was against the order of the Trial Court at the stage of framing of charges, wherein it is the duty of the court to apply its judicial mind to the material placed before it and to come to a clear conclusion that a prima facie case has been made out against the accused. An order for framing of charges is of serious concern to the accused as it affects his liberty substantially. Courts must therefore be cautious that their decision at this stage causes no irreparable harm to the accused. In respect to quashing of the charges, it is well settled that such exercise needs to be undertaken by the High Court in exceptional cases. The framing of charges being initial stages in the trial process, the court therein cannot base the decision of quashing the charge on the basis of the quality or quantity of evidence rather the enquiry must be limited to a prima facie examination. [Paras 10, 11] [278-F-H; 279-A] State of Bihar v. Ramesh Singh 1977 Cri lJ 1606 – relied on.

2.1 The dispute arose out of a loan transaction between the parties. Record showed that respondent no.2 knew the appellant and the attendant circumstances before lending the loan. Further, admittedly, in order to recover the said amount, respondent no. 2 had instituted a summary civil suit which is still pending adjudication. The law clearly recognizes a difference between simple payment/investment of money and entrustment of money or property. A mere breach of a promise, agreement or contract does not, ipso facto, constitute the offence of the criminal breach of trust contained in Section 405 IPC without there being a clear case of entrustment. There is nothing either in the complaint or in any material pointing to the fact that any property was entrusted to the appellant at all which he dishonestly converted for his own use so as to satisfy the ingredients of Section 405 punishable under Section 406 of IPC. Therefore, the Magistrate SATISHCHANDRA RATANLAL SHAH v. STATE OF GUJARAT 275 committed a serious error in issuing process against the appellants for the said offence. Unfortunately, the High Court also failed to correct this manifest error. [Paras 12, 13] [279-B-E]

2.2 In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. In the instant case, admittedly the appellant was trapped in economic crisis and therefore, he had approached respondent no. 2 to ameliorate the situation of crisis. Further, in order to recover the said amount, respondent no. 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred. [Para 14] [279-F-H; 280-A-B]